Saturday, November 05, 2011

More Details on Professor Meeropol’s Critique of the Modern Myths of the Invisible Hand: Worthy of Your Attention (Part One)

Part One

From ”Another Distortion of Adam Smith: The Case of the "Invisible Hand", Michael Meeropol 2004, Political Economy Institute (University of Massachusetts, Amhurst HERE.

I quote the key sentences of the three paragraphs and a long footnote because they encapsulate the first, real evidence-based analytical breaks with the modern myths about Adam Smith’s so-called ”invisible hand’ that I have seen since Lost Legacy began in 2005. I think they should be taken seriously by all readers, despite my own humble reservations that they have not quite understood what Adam Smith was actually and modestly saying in his two references to the IH metaphor in the two works (published in his lifetime), Moral Sentiments and Wealth Of Nations, compared to what has been claimed for him since Paul Samuelson’s textbook, Economics: an analytical introduction, McGraw Hill, 1948 and its subsequent editions had such an impact on modern economics education. (Also, we may note that Professor Meeropol acknowledges Noam Chomsky’s influence in his studies.)

I agree with the first two paragraphs as representative of the modern myth of the IH metaphor.

“… Smith referred to the invisible hand once in his earlier work The Theory of Moral Sentiments. Here he argued that despite the desire to accumulate vast riches, individuals who were in a position to do so were forced to … divide with the poor the produce of all their improvements. They [owners] are led by an invisible hand to make nearly the same distribution of the necessaries of life which would have been made had the earth been divided into equal portions among all its inhabitants; and thus, without intending it, … advance the interest of the society, and afford means to the multiplication of the species.”

“Adam Smith on the other hand, as the above quote makes clear, believed that a relatively equal distribution of “the necessaries of life” would be in the best interest of society as a whole. “It is clear that Adam Smith, at least the Smith of The Theory of Moral Sentiments, believed that the invisible hand was already at work guaranteeing the necessities of life for the poor. How quaint Smith’s idea appears today.”

CommentYes, but. By the “necessaries of life” Smith was not talking anything about an equality of distribution among the very rich feudal landlords and the working poor peasantry (slaves, serfs, and such like, at the bottom of the heap). The gross inequalities of this period in human history were manifest: serfs and their families lived in wooden hovels; the landlords families and armed retainers lived in their impregnable castles, sat by roaring fires, dressed warmly, and drank their fill, ate off platters of food, served by servile women.

And by “necessaries” Smith referred to a share (i.e., the amounts decided by the landlords’ overseers, not a benevolent ruler subject to the legal restraints) of the “necessaries” only, but not the “conveniences, and amusements of life” (Smith’s definition of wealth). In short, bare subsistence was the life-long norm. 21st-century US university professors and Harvard students may have too rosy a (Hollywood) picture of life in the agrarian kingdoms of the millennia before capitalism, after some, later more, humans left the forests and the plains for good in Europe, parts of Asia, from 11,000 years ago. Life in the forests from hunting provided subsistence in “necessaries” (the much favoured optima among some today), and the Ages of shepherding and Agriculture were not much improved upon for the labouring majority fed by their over-lords, and at their mercy, who had no real alternative but to distribute strictly-limited “necessaries” to them to keep them alive in order to benefit from their work and in the lords' wars. But of “conveniences” (warm clothes, utensils, etc.,) there was little extravagance. Of “amusements” (what passed for luxuries) little if any were shared with them. Their lives too were precarious. Freedom was unknown. Even the barons were ruled capriciously by Kings, until Magna Carta curbed their excesses, slightly and as a bye-product.

The absolute necessity of some minimal subsistence was available (no food, no labour; no labour, no food) which led their overlords to keep them alive; this was the “invisible hand” metaphor to which Smith referred; a perfect metaphor for their rulers being led to do what was necessary for them to do if there was to be a continuation of the species (it had nothing to with Providence). In the slowly rising gross output of these societies, basic subsistence was maintained for a rising population (in good years), but the diversion of rising output and labour to castles, churches, temples, and armies, accounted for the rest, including what passed for “amusements” among the rich lords and kings (sparking off nascent inter-regional trade). Basic GDP per capita, showed by Deidre McCLoskey’s, Bourgeois Dignity, remained below the equivalent of a nominal $3 a day for many millennia. That is the reality that commercial society slowly (too slowly) began to replace eventually for poor labourers from the 14th century onwards, accelerating from the 1800s to today’s unprecedented levels, which some philosophers consider to be too a negativeoutcome. (They can always try living on $3 a day in pursuit of ‘happinness’.)

“Smith would also have recoiled in horror from the gross inequalities that the world has experienced in the previous two centuries, as some nations have grown extremely wealthy. Based on his belief in the importance of some semblance of equality at least in the distribution of the “necessaries of life,” he would have looked at the world today and condemned it asserting, “This is not what I expected from the invisible hand.”

An imaginative piece of propaganda that is uncalled for in an academic paper. I suggest an immersion by these scholars in the realities of life for poor the majority in 18th-century Scotland, and for all indigenous people in Africa and the Americas, while Smith was alive. Smith “recoiled in horror” from the treatment of the indigenous peoples (the Atlantic slave trade, and in the Spanish colonies), and would have welcomed the abolition of the Atlantic slave trade, the prospects for which he was pessimistic about, without knowing about the far larger African slave trades of the Arab rulers that continued well into the 19th century.

Turning to footnote 14, we move to the substance of Michael Meeropol’s analysis of the myths of the invisible hand, which are mostly right, but still slightly off beam.

“The author consulted 10 Principles textbooks and every one of them mentioned the invisible hand as illustrating the role of competition in guiding private interests to serve public ends without revealing what Smith actually said. Some utilize the well-known quote by Smith; “It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard for their own interest.”(I: 18) This quote is specifically identified as illustrating the invisible hand principle even though Smith’s reference to the invisible hand is hundreds of pages later in a different context.”

Comment“It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard for their own interest.” (I: 18)

Michael Meeropol is correct. This quote had nothing to do with the invisible hand metaphor. It is about the basic Smithian point that in order to realize one’s own self-interest in acquiring the contents of one’s dinner, it is necessary to appeal to the “self-love’ of the other person and not to one’s own ‘necessities’. In short, to be successful in a self-regarding transaction, he advised readers to be “other regarding” in respect of the self-interests of the “butcher, brewer, baker”, and not to rely upon their benevolence. Self-regarding is not selfishness; self-interest only works if each individual demonstrates a regard for other people in their transaction with them – it is after all, a paragraph in a section explaining how bargaining works in society (WN I.ii.2: 2-27). (Continued below)

5 Comments:

Lost Legacy appreciates approval posts, though it always also publishes critical comments too.

There is some significance in publishing comments on papers, such as this one, that were previously unknown to Lost Legacy and which also move towards an appropriate appreciation of what Adam Smith actually wrote.

Mr. Kennedy, Imagine how surprised I was to just this moment come across a letter of yours published in TLS commenting on James Buchan's book "Capitalism of the Mind". Your comment was about what Smith never said. I also have James Buchan's response to your letter.

Unfortunately, I finished with a quip about James Buchan's wholly innocent role in the review. He contacted me at EBS in a rather angry telephone call and also wrote an angry letter.

I apologised, of course on the bais of Bucham's statements. His subsequent book on Adam Smith showed Buchan to be most aware of Adam Smith's situation and policy statements, and it is an excellent intro for many readers to the authentic Adam Smith.

I said so in my positive reviews of it. Despite further intermittent one-way contact on my part, he has never replied to my messages.

Some scholars are unforgiving ...(memo to younger authors; tread carefully in hasty criticism).